The One Thing You Need to Do Before Accepting a Large Contract

July 27, 2016

The perils of independent contract work are no mystery. If it weren’t for the two biggest challenges — finding work and getting paid for said work — a mass exodus from the traditional workforce would ensue. Given the amount of time that goes into finding work, and the sometimes fruitless effort of tracking down payment, employers have nothing to worry about just yet.

According to the Freelancers Union, half of all freelancers have difficulty getting paid, and nearly three quarters of freelancers have faced non-payment at some point during their careers. In 2014, freelancers lost out on almost $6,000 on average when clients didn’t pay.

So how is a freelancer able to make sure they don’t get stiffed after spending hours on a project for a client?

While there are no guarantees, there are some measures you can take to ensure you’ve done enough research to make a confident decision to work with a reliable client — including a powerful tool that contractors often overlook.

Performing Due Diligence to Avoid the Burn

Get a Contract

As a contractor/freelancer, you have likely developed your own system for vetting potential clients. First and foremost: Get it in writing. Go through the terms of the contract and don’t just assume any statement is benign.

Be as specific as possible on your contracts. For example, if you agree on a rate of $60 per hour for the contract, make sure you and the client have an understanding of approximately how many hours the project may require. If you perform the work and send the invoice for 30 hours, while the client was assuming the project would take about 10 hours, that’s trouble.

Ask for Payment Up Front

It can sometimes feel odd to get paid for work that has yet to be performed, but one way to ensure you don’t get burned is to collect payment initially, either in full or in part. Remember, this is a business transaction, not a handout, and asking for payment before completing the work is a reasonable request. If your project involves purchasing materials, make sure to specify to your client that you’ll need money up front to cover that cost as well.

Ask Others for Insights

Ask others if they’ve worked with the company before and what their experience was like. The National Association of Science Writers (NASW), for example, has a section within their web portal that features firsthand accounts of how difficult a contract project was with a specific client, pay rate, and how quickly the client provided payment for work. Other times, posting a request to an industry listserv to ask about other contractors’ experiences can be revealing. You can also ask the client if you can contact other contractors they’ve worked with to get some insights before committing to a large project.

A Powerful Tool You Probably Aren’t Using Yet: Credit Checks

What if you could avoid all the above hassle with just five minutes of research before agreeing to a large contract?

Checking a company’s business credit report is an effective yet overlooked method that independent contractors can use to vet their potential clients and head some of this off at the pass.

While it’s illegal to access a consumer’s credit score, anyone can check a business’ credit report at any time, and without the business’ consent or knowledge.

Look for Red Flags

As with consumer credit reports, there are red flags that can help you decide if you should enter into a freelance contract with the client.

Payment status: Check to see if the business is on time with payments, if they have any missing payments or overdue bills to assess how well the business takes care of paying its obligations on time.

Derogatories: Does the business have public records or legal claims against it? A bankruptcy is an example of a big red flag, or a tax lien could mean that a business is delinquent on taxes owed for property or income.

Credit utilization: It may not be the perfect indicator, but a high debt usage ratio (which compares balances to available credit) could be a signal that the potential client is overextended.

No credit history. A company with no credit history may be risky too; a young company could be struggling to bring in revenue, for example, and have trouble paying clients like you on time.

If a company you already contract with seems to be heading into dangerous territory on payments, the best practice is to be transparent and contact them to find out what might be going on. You can also break your invoicing up and ask them to start making payments on the work you’ve already performed (as long as it aligns with your contract).

Between finding work, doing the work, and getting paid for it, contractors and freelancers have a lot on their plate. Adding a business credit check to your due diligence before accepting a contract is one of the best and easiest ways to prevent payment problems with your clients.

Nav is the free, easy way for business owners to access their business and personal credit scores and get matched to the best financing and services for their needs.

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